Disclosing cash held offshore

March 2014

At a glance

In our discussions with members of the investment community, they noted that income tax issues are very important to their analyses and they desire more transparency into the impact of income tax related decisions on companies’ financial reporting.

In recent years, the cash (and equivalents) balances of US multinational companies have increased significantly. From 2006 through mid-2013, total cash of US non-financial companies increased 81% to nearly $1.5 trillion. A number of factors may be contributing to the increase in these balances, but the growing significance of companies with foreign operations and the resulting accumulation of earnings from foreign subsidiaries may be a significant contributor. Why? Companies may have an incentive to leave earnings of foreign subsidiaries in the countries in which they operate if those countries have a lower corporate tax rate than that of the US. Disclosing the amount of cash affected by this tax strategy can help investors understand how much of a company’s total cash is not available to fund domestic operations.